September 20, 2001 | Read Time: 8 minutes
In Bedford, Ind., the First Assembly of God church has raised $6,000 through an unusual and somewhat controversial twist on the joint-marketing deals that charities and companies have engaged in for more than two decades.
About a dozen other small organizations nationwide have also raised at least a few thousand dollars, while scores of charities have ended up with far less or nothing at all after they responded to pitches made by independent sales representatives of Excel Communications, one of the nation’s largest long-distance telephone-service companies. The agents are telling charities they can make money — perhaps lots of it — if their supporters sign up for the company’s phone, Internet, or paging services, sell the services to their friends and neighbors, and recruit others to do the same.
The approach, called multilevel or network marketing, relies on the sales representatives’ ability to attract an ever-growing pyramid of other sales agents, in much the same way that companies like Amway and Mary Kay Cosmetics recruit independent distributors to sell products.
Excel, which has its headquarters in Dallas, is not directly involved in promoting the fund-raising plan, though it does profit from it. Instead, independent Excel representatives market it through a separate nonprofit organization called the Seedlings Foundation, which was established two years ago in Sanford, Fla., by six Excel sales agents. Seedlings is incorporated as a nonprofit organization in Florida, and its leaders say that its application for federal tax-exempt status is pending.
Excel representatives who wish to become a member of Seedlings pay the foundation $250 for training and marketing materials. They then establish a charitable trust, name a charity as sole beneficiary, and recruit at least three of that charity’s supporters to become Excel representatives themselves and to recruit both new customers and other people to the sales force.
As long as any customers in the sales pyramid are using Excel services, Excel pays the sales representatives and the trust. How much they earn varies according to complex commission and bonus formulas, which are based in part on the number of new sales representatives they recruit and the size of their customers’ monthly bills. The trust then makes monthly payments to its charitable beneficiary.
Excel profits in two ways: by expanding its phone-service business, and by charging each new sales representative and each Seedlings trust a sign-up charge of up to $245, plus an annual renewal fee of $180.
So far, nearly 500 Excel representatives have joined the Seedlings Foundation, setting up a total of about 200 trusts since 1999. But few of those trusts have made nearly as much money as the Indiana church, and about half are no longer operating. Some of the trusts are managed by the American Fiduciary Corporation, a Florida company established by Doug Grable, one of Seedlings’ founders, to handle charitable trusts. The company charges $10 a month to manage a trust regardless of its size.
Disclosures Prohibited
Some charity officials express reservations about the Seedlings plan because it is unclear just how much money a nonprofit group can make from it. Excel prohibits its sales representatives from disclosing how much income they generate, and the company declines to release such information. Seedlings officials, too, won’t estimate how much a charity, through a trust, could earn, saying that amounts vary according to the number of customers and sales representatives who participate.
In promotional materials for prospective Seedlings members, however, the foundation states: “Millions of dollars can now be redirected to create ongoing giving programs producing tax-free, passive, residual, growing income, never before possible.”
Along with questions about how lucrative the Seedlings plan can be, critics see another reason to be skeptical. They contend that multilevel marketing approaches, which depend on an ever-widening circle of sales, often raise false hopes of big profits, and they question whether charities ought to be involved with such activities. Daniel Moore, a New Mexico charity regulator who is president of the National Association of State Charity Officials, says an organization that chooses to raise money through a network-marketing business may be “inviting in a Trojan Horse.”
“They are talking about helping your charity raise money, but you are really opening up your membership to be solicited by multilevel marketers,” he says. “Organizations ought to be concerned about having exposed people associated with their cause to this kind of business activity. If this business activity sours, so might this person’s relationship to the charity sour.”
Burton A. Weisbrod, an economics professor at Northwestern University who studies joint marketing deals involving charities, says that when, for example, a church makes a deal with a multilevel marketer, the church is encouraging its supporters to become sales representatives for that company.
“The church is saying, ‘We think this product not only deserves your service, but we also want you to spread the Gospel and go to work for them,’” Mr. Weisbrod says. Such an endorsement, he adds, carries with it a huge responsibility for the charity to have analyzed, and approved of, the business.
Despite such concerns, fund-raising experts say the Seedlings program does not appear to violate any fund-raising laws or otherwise be improper.
Walter Sczudlo, general counsel for the Association of Fundraising Professionals, says that as long as a charity’s leaders and supporters who are solicited by Excel sales representatives know that Excel will pay the representatives, the arrangement would adhere to the association’s ethics code.
Benefiting Children
Over the last two years, Greg Kite, an Excel salesman in Orlando, Fla. who is one of the founders of the Seedlings Foundation, has established as many as eight trusts to benefit the Gift of Learning Foundation, a nonprofit group in Winter Park, Fla., that supports programs for learning-disabled children.
Mr. Kite, a former professional basketball player who is the foundation’s vice president, says setting up more than one trust has allowed the trusts to earn money from the bonuses Excel offers based on how new a trust or sales representative is to the business.
The Gift of Learning Foundation, he says, has received $10,000 from the trusts since 1999. And since that time, the foundation has given a total of more than $60,000 in scholarship money for low-income students and students with learning disabilities to attend Pathways School, a for-profit institution in Orlando founded and run by Mr. Kite’s wife, Jennifer L. Kite.
Mr. Kite says that six of Gift of Learning’s trusts are still operating, but that none continues to generate much money because few customers are still involved. “More money has been upfront, quick money,” he says, pointing to the bonus payments for new trusts and recruits.
‘Unseen Fund Raising’
John J. Dodd, senior pastor at First Assembly of God, in Bedford, says he has no idea how much money his church will ultimately receive through the Seedlings program. But, he says, he signed on because the program offered “seamless, unseen fund raising that can last forever.”
Mr. Dodd says he has been careful not to endorse Excel to his parishioners, though he says he has talked about the Seedlings program from the pulpit a few times.
In addition, he says, he has allowed Kevin Day, a church member and the Excel salesman sponsoring the church’s Excel trust, to give a presentation at the church’s annual business meeting. Mr. Dodd estimates that as many as 250 of the church’s 700 congregants are using Excel services.
He does not know how many have become Excel distributors. Mr. Day declined to provide such information.
“People are free to get involved or not,” Mr. Dodd says. “It’s a way to promote giving to the church with no pressure. People are going to pay their phone bills anyway. This way a portion of that money goes to the church.”
The Seedlings program doesn’t always generate money for nonprofit groups.
On its Web site, the Seedlings Foundation lists the Episcopal Women’s Foundation, a nonprofit organization that supports programs for women and girls, as a beneficiary of a Seedlings trust. But Nancy Grandfield, the foundation’s executive director, says her organization has never received money from such a trust.
A Seedlings official says that the trust never recruited enough customers or sales representatives to make any money, but that another trust to benefit the foundation is in the works.
Likewise, the Down Syndrome Association of Houston never received any money from a trust that the group’s president, Rosa Rocha, says she established in its name. Ms. Rocha, an Excel distributor and Seedlings member, says that at least 22 new customers signed up to use Excel services, but that she didn’t renew the trust’s annual contract with Excel because the trust wasn’t earning enough money to cover the renewal fee and management costs.
Stephen Hankins, the Down Syndrome Association’s treasurer, says the group never received any money from a Seedlings trust.
Takes ‘Commitment’
Mr. Grable of Seedlings and other Excel distributors say the key to creating significant revenue through the Seedlings program is recruiting sales representatives with a passion for both the charity and the business. Hard work and patience also help, they say.
“Because multilevel marketing is sold as get-rich-quick, it attracts lazy people, people that say, ‘I can do that. I don’t have to do anything,’” Mr. Grable says. But, he adds, the Seedlings program takes “commitment.”
Stripped of all its details, he says, the Seedlings program is a straightforward revenue producer for any charity: “What we are saying is simply: If you already pay $50 a month on your phone bill, why not have a percentage of that go to an organization you believe in?”
